Record youth unemployment raises economic concerns in China

As youth unemployment in China reaches record levels, college graduates are caught in a perfect storm – some forced to take low-paying jobs or settle for jobs below their skill level.

Urban employment among 16- to 24-year-olds in China reached a record 20.4% in April – nearly four times the broader unemployment rate, official data showed, while millions more college students are expected to graduate this year.

“This college bubble is finally bursting,” said Yao Lu, a sociology professor at Columbia University in New York. “The expansion of college education in the late 1990s led to a huge number of college graduates, but there is a misalignment between the demand for and supply of high-skilled workers. The economy hasn’t caught up.”

The unemployment crisis is another issue that Chinese youth and policy makers have to grapple with.

In co-authored Lu with Xiaogang Li, a professor at Xi’an Jiaotong University, the professors estimate that at least a quarter of college graduates in China are unemployed, on top of rising youth unemployment rates.

“Increasingly, college graduates are taking positions that don’t match their training and credentials to avoid unemployment,” Lu told CNBC.

Under-employment occurs when people settle for low-skilled or low-paying jobs, or sometimes part-time work, because they cannot find full-time jobs that match their skills.

“These are jobs that were primarily held by non-college educated people,” Lu said.

The chilling effects of graduating in tough economic times have been well documented in other societies. Research from Stanford University shows that college graduates who begin their working lives during periods of recession or economic downturn earn less for at least 10 to 15 years than those who graduate during periods of prosperity.

Data from China’s Bureau of Statistics shows that of the 96 million 16 to 24-year-olds in the urban labor force, 6 million are currently unemployed. From this figure, Goldman Sachs estimates that there are 3 million more unemployed urban youth than in the period before the COVID-19 pandemic.

This is likely to make it all the more urgent for the Chinese government to act.

Shahzad Qazi, managing director of China Beige Book, said, “Low job prospects can inevitably lead to discontent among young people, and a perceived failure to ensure their material well-being can upset the social contract people have with the Communist Party.” “

Colombia’s Lu told CNBC that given China’s aging and shrinking population will reduce its economically active population, the effects of youth unemployment and underemployment “could potentially have very negative implications for the economy”.

According to data from the International Labor Organization, while China is not the only society in the world plagued by double-digit youth unemployment, few others are looking at the scale of China’s problem.

The Chinese central government is very aware of this problem.

In April, China’s State Council announced a 15-point plan aimed at better matching jobs with young job seekers. This includes support for skills training and apprenticeships, a one-time expansion of recruitment in state-owned enterprises, and support for the entrepreneurial ambitions of college graduates and migrant workers.

Analysts say the more fundamental mismatch is much harder to address.

“In many societies, including China, there is usually a gap between the labor market and higher education institutions. They don’t necessarily speak to each other,” Lu said. “Universities have some sense of where the labor market is and what employers are looking for, but their understanding is sometimes out of date, and may be distorted from time to time.”

There is also a mismatch between the changing expectations of the more educated youth and an economy that is not keeping pace with their aspirations.

“Because of the rapid increase in education for both men and women, these young people are no longer willing to go back to factory jobs,” said Jean Yeung, a sociology professor at the National University of Singapore.

According to the country’s Ministry of Human Resources and Social Security, nearly 30 million manufacturing jobs in China could remain unfilled by 2025, even as the youth unemployment rate climbs. The ministry said the sector accounts for about half of all jobs.

“But the plan was for China’s economy to transform from a labor-intensive industry to a more technological, one with a stronger service-oriented, knowledge economy,” Yeung said.

Yet this transition seems half-hearted in China’s state-run economy, according to Qazi.

Economists say that a thriving service-driven economy is based on the support of the private sector. But the problem is that small and medium sized companies are not getting access to credit.

“Until that happens, you’re not going to be able to have services in the private sector really be able to absorb these young graduates who want to work in new industries, industries of the future, and then massive economic change.” Will be able to do.” Qazi said. “It’s all interconnected.”

China’s “zero Covid” policy during the pandemic led to factory shutdowns and a two-month lockdown in the financial capital of Shanghai last year, as the wider economy ground to a halt.

Goldman Sachs says a slowdown in the services sector at the start of the year may have contributed to the current high youth unemployment rate, ahead of China’s reopening.

However, US investment bank analysts forecast that China’s youth unemployment rate will peak in the summer months of July and August with an influx of new college graduates.

Economists at Goldman Sachs say getting youth back to work will help China’s economic recovery because it will restore the consumption power of youth, a demographic that typically accounts for about 20% of consumption in China.

Except for jobs that don’t match what they want or are trained to do.

“I think it’s ironic that a college degree is not enough for most college graduates nowadays to get a high-skilled job,” Lu said.

“But at the same time, it’s becoming unnecessary because everybody’s getting it.”